Real Estate Development with Conservation Option
Preserving open spaces through private conservation for a cleaner, healthier environment

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Real Estate Development with Conservation Option

We work with program sponsors that own large parcels of land across the United States.  They are experienced land developers who utilize their property through the building of multifamily projects, hotels and resorts or other types of real estate assets.  Others specialize in mining for minerals, metals, oil, gas or other enterprises.

As part of their programs, sponsors propose several options to be voted on by investors, which will direct how the land will be used. 

These options include:

  1. Hold the land for potential increase in valuation without developing or conserving

  2. Develop the land based on a detailed development proposal which can include building, mining or other enterprise

  3. Conserve the land with an easement for protection against future development

Image by Daniel McCullough

Option 1

Hold the Land

Land Banking; the practice of aggregating parcels of land for future sale or development.  In this regard, investors would anticipate the future value of a particular parcel to appreciate or be desired by another developer or investor.

Option 2

Develop the Land

Land development is also sometimes referred to as land improvement or land amelioration.  It refers to investments making land more usable for human habitation.  For accounting purposes it refers to any variety of projects that increase the value of the property.  Most are depreciable, but some land improvements are not able to be depreciated because a useful life cannot be determined.

In an urban context, land development includes:

 

Landowner or developers will often want to maximize profits, minimize risk and control cash flow.  This "profit enhancement" means identifying and developing the best proposal for the local marketplace, while satisfying the local planning process.

Development Analysis conducts a thorough review of development prospects and the development process, identifying where enhancements and improvements can be introduced.  Development can come in many forms; including, residential for living, retail for commerce, office for enterprise, industrial for manufacturing and distribution, as well as many other purposes.

Independent appraisals of projects are conducted to provide a market analysis of comparable properties, validity of the proposed project and assistance in the determination of whether to development the land.  Appraisals may also provide market intelligence which can alter plans to better position the proposal for success.

Option 3

Conserve the Land

Conservation easements (also called conservation covenant, conservation restriction or conservation servitude) is a power invested in a qualified private land conservation organization (often called a “land trust”) or government (municipal, county, state or federal) to constrain, as to a specified land area, the exercise of rights otherwise held by a landowner so as to achieve certain conservation purposes.

It is an interest in real property established by agreement between a landowner and land trust or unit of government.  The conservation easement “runs with the land”, meaning it is applicable to both present and future owners of the land.  As with other real property interests, the grant of conservation easement is recorded in the local land records; the grant becomes a part of the chain of title for the property.

The conservation easement’s purposes will vary depending on the character of the particular property, the goals of the land trust or government unit, and the needs of the landowners.  For example, an easement’s purposes (often called “conservation objectives”) might include any one or more of the following:

  • Maintain and improve water quality;

  • Perpetuate and foster the growth of healthy forest;

  • Maintain and improve wildlife habitat and migration corridors;

  • Protect scenic vistas visible from roads and other public areas;

  • Ensure that lands are managed so that they are always available for sustainable agriculture and forestry.

The conservation easement’s administrative terms for advancing the conservation objectives also vary but typically forbid or substantially constrain subdivision and other real estate development.  The most distinguishing feature of the conservation easement as a conservation tool is that it enables users to achieve specific conservation objectives on the land while keeping the land in the ownership and control of landowners for uses consistent with the conservation objectives.

Tax Benefits

Under a conservation easement, a property's owner gives up the right to make certain changes to that property, to preserve it for future generations. Such an easement usually limits the usefulness of the property and lowers its value. When a conservation easement meets criteria spelled out in the Internal Revenue Code, the owner may qualify for a tax deduction based on the property's reduction in value.

A conservation easement that qualifies for a tax deduction is considered a non-cash charitable contribution. Special rules apply for charitable deductions of conservation easements. The amount of the deduction as well as other characteristics can vary based on how the person or entity uses the property that is being conserved.

Risk Factors

Investment in real estate and development contain many risk factors; including those of specific property issues, the economy of the geographic locations, environmental hazards, the risk of loss of tenant and other factors typically associated with a real estate investment.

Development of real estate is generally higher risk than investment in completely developed and stabilized property.  Among the risk factors include obtaining approvals and permits, the potential need for removal of hazardous waste on a development site, geographic and economic risk, risk of tenanting a property and the length of time a developer has "carry costs" until stabilization occurs.

The IRS has deemed certain syndicated conservation easements as "Listed Transactions" which require special filing procedures and forms.  In addition, there is a high level of scrutiny placed on syndicated conservation easement transactions, with congress and the IRS currently analyzing tax laws and rules relating to tax incentives for easements with potential changes that could be made which may retroactively effect an investor.  Please consult your tax advisor for more information on the tax incentives, filings and prospective changes to the tax law as it relates to conservation easements.

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Image by Lucas Gao
Milestones in Conservationism
1872
Yellowstone becomes the first US National Park
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1930s-1940s

The National Park Services purchases easements encumbering almost 5,500 acres to protect scenic vistas

Image by kermit nicou

1964

The IRS publishes a Revenue Ruling authorizing tax deduction for the donation of a conservation easement.

Image by Todd Trapani

1901

Conservationist and sportsman Theodore Roosevelt is elected president.  His interest in conservation helps make protecting wildlife habitat a federal and private sector priority.

Image by Jordan Pulmano

1960s

Congress passes the Wilderness Act, the Land and Water Conservation Act, the Clean Air Act, and the National Wild and Scenic Rivers Act.

Image by Olga DeLawrence

2015

Congress makes the enhanced federal tax incentive permanent.  Over the preceding 10 years, the rate of private conservation increases by 175% with more than 20 million acres of land being conserved.